Mixed as drugs deal gives a lift

Pfizer, Pharmacia in $60 billion deal; tech sector edges up

By

EmilyChurch

LONDON (CBS.MW) - U.S. stocks were mixed in very tentative trade ahead of the open on Monday despite a bounce in the stock futures after Pfizer confirmed an agreement to buy Pharmacia in $60 billion, all-stock deal.

The Nasdaq 100 tracker
QQQ, +0.73%
was up 0.6 percent at $24.95 on Instinet ahead of 9 a.m., signalling some expectation for a boost on the open.

SoundView Technology analyst Arnie Berman believes technology stocks are a "great buy," given that fundamentals in the sector are not as bad as current share prices reflect, or have they eroded as sharply since mid-May as the 32 percent slide in the typical technology stock suggests.

European markets were slightly firmer, overcoming the slide on Friday in New York. Yet in a potential negative for U.S. stocks, the dollar was weaker vs. the yen and the euro. The euro was trading above $1 for the first time since February 2000. See full story

M&A booster shot

Dealers in London said the size of the Pfizer deal and the 38 percent premium the terms set for Pharmacia were a tonic for the markets, and looked to set off consolidation hopes for the hard-hit pharmaceuticals industry. Drug stocks in the S&P 500 are down about 30 percent for the year.

Shares of Pfizer, the largest drugmaker in the world, dropped 11 percent to $28.70 in the pre-open over the Redibook ECN. Shares of Pharmacia jumped to $40.45, a 24-percent gain. See full story on deal, terms, reaction

"There's a little bit of speculation that this will start another round of global consolidation and that investment bankers will be sharpening their pencils," said Peter Cartwright, a market strategist at broker Williams de Broe in London.

Bristol-Myers
BMY, +2.31%
and Wyeth
WYE
appear most vulnerable to takeovers, following recent setbacks for the companies in the market, NCB brokers in Ireland said on Monday.

Bristol shares rose 81 cents to $23.51

Schering Plough
SGP, -0.56%
and European firms Novartis
NVS, +3.14%
and Roche
RHHDY
are likely to rise on speculation the four may be acquisition targets, Deutsche Bank in London said. Shares of No. 2 GlaxoSmithKline
GSK, +0.78%
were weaker in London.

Millennium Pharmaceuticals
MLNM
slide 65 cents, or 6.6 percent, to $9.20 after saying it would discontinue its oral MLN977 program for the treatment of asthma after three patients experienced an elevation in liver enzymes that were likely drug-related.

Banc of America
BAC, +0.76%
kicked off the big earnings week with June quarter earnings per share of $1.40, an increase of 13 percent over the same period a year ago and a penny above consensus analyst forecasts. Meanwhile, sales declined 1 percent to $8.74 billion.

Shares of oil major Shell
RD
declined 1.6 percent on the London market amid a report in the Financial Times that said RoyalDutch/Shell energy trading business in Houston has options worth $7.4 billion on future U.S. power prices that may turn out to be worthless.

The report cites George Namur, a former general manager at the Houston business. He also raised concerns over the accounting treatment of its energy trading derivatives. Rival BP
BP, -0.26%
was down 2.1 percent in morning trade.

Key Energy Services
KEG, -6.25%
indicated that fiscal fourth-quarter earnings would fall short of consensus analyst expectations, due to a decline in its ancillary service and trucking rates, and to wild fires in Arizona and New Mexico which led to idled or delayed deployment of several drilling rigs.

From the brokers...

Merrill Lynch told clients overnight that its stance on semiconductor stocks in the U.S. "continues to be cautious. We don't believe that valuations are yet compensating investors for ongoing lack of visibility into a recovery." The broker is assuming aggregate revenue growth of 6 percent sequentially in the third quarter and 9 percent in the fourth.

Banc of America Securities said it raised the recommended allocation of equities in a model portfolio by 5 percent to 60 percent. "Recognizing a bottom is near impossible, but we continue to see improvement in our valuation and sentiment indicators," strategist Thomas McManus said. He lowered bonds by 5 percent to 30 percent. Cash remains at 10 percent.

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